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SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-1

Selecting a : What Factors Do Commercial Customers Consider?

Introduction development of their own launchers with the hope of offering commercial Commercial satellite owners and services. operators clearly have the luxury of choice when it comes to selecting a While the wide assortment of launch launch vehicle to transport their vehicles available today affords assets into . Whether the final satellite owners and operators destination is low-earth orbit (LEO), numerous deployment options, this (GEO), or situation has created an extremely somewhere in between, the world competitive business environment supply of launchers to deliver for launch companies worldwide. to orbit has exceeded Indeed, the competitive market has demand each year for more than a had a major impact on U.S. share of decade. While established launch commercial launches. Commanding companies in the United States, about 50 percent of commercial France, Russia, and China work to launches during the mid-1990s, U.S. introduce increasingly capable launch providers’ share of the market versions of their , new players now hovers around the 20 percent such as Japan, India, and level (Figure 1). continue to make headway in the

100% Actual Forecast 90%

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0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Year Figure 1. U.S. Share of Worldwide Commercial Launches SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-2

U.S. vehicles carried into orbit 38 customers considered most percent of U.S. commercial satellites important in evaluating launch and just 8 percent of foreign vehicles. In addition, the FAA commercial satellites that rode on completed eight interviews on this commercial launches in the year issue with commercial 2000.1,2 owners and operators. The companies How can U.S. launch companies interviewed represented a variety of capture a greater share of the demographics and interests: some worldwide commercial satellite were domestic while others were launch market in the upcoming foreign, some were interested in years? The answer requires a solid GEO satellites while others focused understanding of the criteria on LEO constellations, some commercial satellite owners and companies were well-established operators value and follow most while others had recently started up, often when evaluating launch vehicle and most had used vehicles from choices. This report considers a more than one country. An number of those selection factors, as additional interview was conducted offered by a variety of commercial with the National Reconnaissance companies owning and operating Office (NRO) for comparison to the satellites. commercial respondents.

Sources and Nature of Data Launch Vehicle Selection Criteria

The data on commercial satellite This section discusses the factors owners’ and operators’ launch launch vehicle customers consider in vehicle selection criteria used to evaluating vehicles, based on the compile this report came from two responses given in the launch primary sources. One source was customer satisfaction survey as well the results of a customer satisfaction as the FAA-conducted interviews. survey conducted by a U.S. launch The factors are discussed here in an vehicle service provider. This survey order that roughly reflects the reported the responses of 62 launch frequency with which they were customers, including NASA, the U.S. cited, starting with those mentioned Air Force, and domestic and most often. international commercial satellite owners and operators. Several Reliability of Launcher questions focused on factors The NRO and six of the eight 1 Commercial launches are defined here as companies interviewed by the FAA those launches licensed by the FAA, said that a launcher’s reliability—its internationally competed, or privately state of having low risk of technical financed. 2 These percentages omit launches by Sea failure based on a history of prior Launch, a joint venture of the United States, mission success—is one of the most Russia, , and Norway. SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-3

important factors they consider in positive record of launch success. evaluating a launch vehicle for use. One commercial interviewee said According to the launch company that his company’s minimum customer satisfaction survey results threshold for launch success is 90 analyzed, both U.S. and foreign percent. Companies also consider companies consider reliability to be the success history of launcher one of the three most important components; some indicated their factors, while reliability by far tops willingness to fly on new NASA’s and the Air Force’s lists of vehicle models using components selection criteria. Customers with strong records of success. The sending payloads to both GEO and NRO indicated that it would consider LEO agree on reliability’s flying payloads on an emerging significance. launch system depending on the concept’s viability, credibility, and According to several of the demonstration and risk reduction commercial entities interviewed, data. A launch company’s longevity launcher reliability is critical because in business contributes to at least reliable launch vehicles increase the one satellite owner’s sense of a chances that payloads will reach launcher’s reliability. orbit. In the case of a new satellite venture, a launch failure could Most companies interviewed said substantially delay the time it takes a that they are willing to pay more for a company to get its satellite(s) high reliability vehicle. Of those, deployed and thus enter the market. most indicated that they would pay a Business ventures that must replace little, but not a lot more, for reliability; satellites to operate efficiently or one U.S. company that has bought effectively and those that need to launchers from several countries deploy satellites to expand business expressed its willingness to “pay a also sense the import of launcher premium” for vehicle reliability. reliability. The NRO explained the Another company warned, however, criticality of launcher reliability to its that it would not purchase the most goal of 100 percent mission success. reliable of rockets if the cost were In these cases, technical prohibitive. Several brought up the conservatism typically prevails over fact that choosing a vehicle with high other factors. In contrast, reliability translates into reduced government or private technology insurance rates for companies who demonstration missions whose choose them. failures would not significantly affect a program or business may be more Launcher Performance and inclined to weigh reliability and costs Suitability of launchers more equally. Domestic commercial and Prospective satellite customers thus government respondents to the tend to place great emphasis on launch customer survey, the NRO, whether a launch vehicle is and seven of the eight commercial “proven”—that is, whether it has a interviewees indicated that a SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-4

vehicle’s performance and suitability Launcher Price to carry the satellite(s) onboard is one of the most important factors in The price of a launch vehicle is one their evaluations of launchers. of the top factors in launcher International respondents to the selection for all of the survey launch company’s survey ranked the respondents and interviewees. This combination of performance and metric, however, ranked highest for suitability fourth in importance. international commercial entities and tied with reliability and performance Performance of a vehicle comprises for domestic commercial groups, its capability of lifting a certain whereas it fell beneath reliability and mass to a desired orbit and performance for the government its ability to insert its payload(s) into clients. the proper orbit. Launching a satellite into space but failing to Constituting roughly 25 percent or deliver it to the correct orbit could more of a satellite project’s total cost, effectively render it useless. launch price, including insurance, is Suitability refers to both the vehicle’s a major concern of satellite compatibility with various types of companies and the government for payloads and its payload margins. good reason. Virtually all companies Payload margins equate to “wiggle interviewed stressed their attraction room” for satellites: a vehicle with to launch service providers offering wide margins is often desirable competitive prices. Several because more changes can then be expressed that a significant increase made to a satellite (e.g., it can grow in launch prices would have an in size or weight) without affecting impact on their rate of expansion or the satellite’s ability to ride on that replacement of satellites and could vehicle. potentially put them out of business.

Both GEO and LEO customers are Some of the companies interviewed concerned about the payload weight explained that their assessment of a vehicle can carry. GEO satellite launcher price is folded into a larger owners seek heavy-lift vehicles measure called “present value,” because their satellites are which also accounts for the payment becoming increasingly heavy and schedule a launcher is willing to need to travel into a high orbit. LEO offer. Small and start-up companies constellation ventures tend to seek are particularly interested in a launch vehicles that can flexible payment schedule that accommodate and deploy several allows them to defer expenses as satellites into orbit at once. One much as possible. Even more interviewee explained that paying for established companies view vendor a large vehicle could offset the costs financing as selling points as long as of having to miniaturize satellite financing rates are acceptable. One components to make their satellites commercial interviewee said his fit on smaller vehicles. company prefers to make payments as the launch provider achieved SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-5

various milestones of their contract. One U.S. satellite company A few satellite owners also indicated interviewed indicated that it was that launch providers’ willingness to wary of scheduling launches with invest in their satellite systems providers who sometimes bump factors into their decisions. commercial launches to give priority to government needs. Another Availability and Schedule interviewee favors vehicles that use mobile launch platforms because Only half of the companies they offer relatively great availability interviewed expressed the and a high range manifest and importance of choosing a launcher because vehicle configurations can whose availability is compatible with be changed fairly easily. Several their desired launch schedules. agreed that in spite of the potential Some of these respondents stressed cost savings, they prefer to schedule the importance of finding a launch satellite launches independently provider or providers that could meet rather than have them partnered with the special requirements of particular other launching on the satellite systems; for example, LEO same vehicle because such a constellations require several partnership could result in less launches within a short period of control over launch schedule. time. The selection of providers for these satellites’ deployment often U.S. Technology Transfer comes down to which launch Safeguards vehicle(s) can launch several times per year or can meet a demanding In concurrence with the responses of timetable; in many cases, this means international respondents to the a satellite customer must end up launch customer satisfaction survey relying on several different providers. analyzed, every foreign-based One LEO system owner said that satellite owner that the FAA securing a niche in the market and interviewed expressed that U.S. then developing an image as a good technology transfer safeguards are a and reliable communications service major factor in their evaluations of provider is dependent on launching U.S. launch companies. Before a satellites in a short period of time U.S. launch company can discuss and without delay. A GEO satellite the technical details of a business system owner said that time until deal with a foreign satellite customer, launch availability is especially it must obtain a marketing license relevant for those needing to replace from the State Department. The satellites destroyed in a launch launch company must get another failure. Some companies said that government license, a Technical another consideration is that different Assistance Agreement, to physically vehicles have different turnaround work with a foreign company on times and abilities to respond to matters such as integrating the customers’ requests to change a company’s payload onto the vehicle. launch date. SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-6

These licenses can take several U.S.-built satellites a challenge for months to procure. As a result, foreign satellite companies. working with a U.S. launch provider presents many difficulties for an Customer Relations and international satellite owner. These Partnerships firms must contemplate whether the U.S. launch provider will be able to Most of the companies interviewed secure the appropriate licenses to by the FAA said that the quality of work with their company (a situation the relationship they established with that can vary based on international a also has political conditions) and, if so, an influence on their vehicle whether the licensing process will selections. Most agreed that they affect their ability to launch when value providers who convey desired. Time is an essential professionalism, are sensitive to their element for companies to fulfill their needs, and respond to their needs business plans. quickly. Also critical is a good working relationship during both the U.S. launch providers must also negotiations and procurement obtain U.S. government-issued stages, especially when problems licenses to supply insurance arose. The ease with which companies, often located abroad, companies could communicate with with technical information to launch providers over national and determine their rates. This cultural divides is also important. requirement often further delays According to one respondent, good business dealings between the rapport between the satellite’s launch provider and payload manufacturer and potential launch customer. providers is also desirable.

Licensing issues are also a major Some satellite companies stressed consideration of U.S. satellite owners their interest in developing solid, in evaluating foreign launch long-term relationships and providers. One U.S. satellite partnerships with launch providers. operator that uses U.S.-built According to one interviewee, satellites indicated that current U.S. developing partnerships with just a satellite export controls have made few providers is preferable to turning doing business with even those to newcomers: repeat and consistent launch providers based in countries business can enable both the with good U.S. relations very difficult. satellite operator and launch provider The delays these controls cause, to offer each other mutual benefits. however, have not stopped several Such partnerships can allow the companies from engaging in the partners to offer each other preferred export licensing process because prices for products and services they believe that a foreign launcher (Alenia Spazio and Boeing recently provides the best available value. created a partnership in which Alenia Export controls also make procuring Spazio would provide fuel tanks for the 2’s upper stage in SECOND QU ARTER 2001 QUARTERLY REPORT TOPIC QRT-7

exchange for Delta launches at of higher insurance premiums on discounted prices for its satellite future launches. customers). In addition, using the same launcher repeatedly can allow a satellite owner to reap the benefits Conclusion of bulk buying. The potential for engaging in future collaborative work While the particular requirements with the launch company or its and resources of satellite owners parent corporation is often a major and operators ultimately determine consideration for satellite owners as their launch vehicle selections, the well. above discussion reveals that most commercial operators and at least Incidentally, some of the one government operator consider interviewees that agreed on the many common factors, with vehicle value of partnerships with launch reliability, performance and providers indicated that attractive suitability, and price topping the list. prices or other enticing factors The majority of the commercial offered by new launch providers satellite companies the FAA might persuade them to consider interviewed and that responded to options beyond the launch providers the launch company customer they patronized most often. survey have used multiple types of launchers to deploy their satellites, Terms and Conditions indicating that launch procurers rarely confine themselves to a single A few interviewees indicated that the launcher but prefer to diversify their terms and conditions to which a choices. In doing so, a company launch provider is willing to agree in makes decisions based on not one a contract is another factor in their but many factors, evaluating them selection process. Terms and and making trade-offs to achieve an conditions include issues such as optimal combination of technical, payment schedule, payload programmatic, financial, and integration and launch schedule, contractual factors. liability, and contract termination. The issue of liability is particularly important to those who commented on terms and conditions: these satellite owners made clear that they expect a launch company to share with them the financial risk associated with a launch failure. Specifically, these companies said they expect a launch company to offer a replacement launch at little or no cost, share in the loss of revenue due to their satellites’ inability to reach orbit, and/or shoulder the cost